Walter Hutchens’ Blog

I love being a professor. There are lots of great things about it. One is the joy of watching students blossom. Another is all the learning I get to do. In my current Business, Government and Society class I am enjoying both these benefits, watching students accomplish much while also learning a great deal myself. Right now we’re mutually learning details about the:

1. fight over the constitutionality of the recent law to reform the US health care system;
2. lawsuit the Department of Justice has filed to stop AT&T’s acquisition of T-Mobile (T-Mobile is based in Bellevue, Washington which is the venue for this class!);
3. complaints some NGOs have voiced about Apple’s manufacturing operations in China (via its contract suppliers), including both their environmental and labor practices and
4. lawsuits the regulator/conservator of Fannie Mae and Freddie Mac has filed against Goldman Sachs and other sellers of mortgage backed securities.

The course is designed to acquaint business majors with how firms are affected not just by markets and internal management issues but also by the actions of governments and civil society.

I assign a textbook for the course—one of the standard texts for the field, now in its 13th edition, but I like teaching about topics “ripped from the headlines,” things unsettled and so contemporary that they are not yet in even the most recent edition of a textbook. I hope it makes the students feel drawn into important, ongoing dramas. Sometimes this works beautifully, shifting their perspective, prompting them to care about a topic not just because it will be “on the test” but because they become sincerely interested in it.

I think it is good, too, to give students primary source materials rather than something derived from a journalistic or textbook account of a matter. It can be challenging for them, but they get a lot of benefit from wrestling with these primary sources (the actual appellate court decisions in the health care fight, the actual DOJ complaint in the T-Mobile case, the actual FHFA complaint against Goldman Sachs in the mortage backed securities case and the full report of an NGO in the Apple matter). It helps them learn to read carefully and critically, helps them practice extracting and synthesizing information from a complex text—skills that will benefit them long after the Supreme Court has decided whether or not Congress can make everyone buy health insurance, long after they’ve forgotten the relevant seven magic words of Article I, Section 8, Clause 3 of the Constitution (and who Roscoe Filburn and Angel Raich were!). I hope they’ll develop a lingering respect for the judicial system and some pride that they have read some judicial opinions “in the raw” and extracted facts and arguments from them—I hope the course builds, to be blunt, their self confidence about what they can do (which is infinitely more than load some vapid bullet points from canned textbook PowerPoint slides into their short-term memory right before a test!).

For our unit on the health care law their assignment is to write an opinion on whether the insurance purchase mandate is constitutional, as if they were a Supreme Court Justice. They are to lay out the key provisions of the act, cite the relevant parts of the Constitution (the Commerce Clause and the 10th Amendment, with some nod to the concepts of enumerated powers and federalism) and distinguish or apply a handful of key precedents to substantiate their conclusion. It is a lot of work for them—these, again, are undergraduates—but I think students in my BGS class know more about what “Obamacare” actually provides (and requires) and how it is being contested than most any undergraduates in America. I am proud of that, and hope in the long run they will be, too, along with accruing a surfeit of other benefits.

Aside: besides the primary source materials, I am proud of having managed to assign a perfectly apt article from the Onion (“Area Man Passionate Defender Of What He Imagines Constitution To Be“).

Just finished a one-month course (a course within a course, actually) on the global financial crisis and its aftermath. This was a reprise of my Jan. Term class.

I taught it as part of “Core 350,” an applied ethics and public policy course required of all undergraduates at Whitworth, the college where I teach. The course is composed of three segments. For both the first and last segments, the students meet in a large auditorium in plenary sessions (about 160 students). But for the middle segment of the course, the students meet three times per week with just their discussion group (d-group) of only 20 students to explore a single public policy topic or theme in depth. As the topic for our d-group’s intensive study I chose the current global economic turmoil, or “the financial crisis and its aftermath.”

It was good to explore with another group of students all the intricacies of what caused the near global “meltdown” in September 2008 and what’s been done to fix things (and what’s been proposed on the “never again” front). We all learned a lot, including me.

To begin the course I again used scenes from the classic movie It’s a Wonderful Life. Clips of the movie allow me to depict the concept of a bank run or liquidity crisis, some basics of mortgage lending (George Bailey was in the business of helping people get houses, including people who would not have been regarded as ideal credit risks at that time, long before the current sub-prime era—though nothing in the movie suggests that he was involved in securitization or using 30:1 leverage for proprietary trading of “naked” credit default swaps or other derivatives!)

This time, on the first day, I added an exercise where I asked the students to sketch (literally) their dream houses, then write a paragraph or two to describe in prose the kind of place where they’d one day like to live. That was an effective ice-breaker and entry point into the material. Soon enough, we were discussing mark to market accounting, credit default swaps, collateralized debt obligations and the repeal of the Glass-Stegall Act. Better to start by drawing pictures of houses, like in grade school, to ease into it.

I assigned the books Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked and Government Bailouts will Make Things Worse by libertarian Thomas E. Woods and Street Fighters: The Last 72 Hours of Bear Stearns by Kate Kelly. In the spring when I re-teach the unit, I am thinking of adding It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street by Nomi Prins, and I may replace Kelly’s engaging book (which worked well) with House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William Cohan. I enjoyed Kelly’s book (and admire her reporting for the Wall Street Journal), but the Cohan treatment seems better in terms of explaining, for non-initiates, the financial background, not just telling the gripping story of Bear Stearns’ ultimate collapse (with background on the colorful characters). I think the Prins book (which is both well researched and forcefully argued) would pair nicely with the Woods book—she mainly blames Wall Street banks (and government de-regulation of banks); Woods blames government interference. That sets up a nice argument, and each book is well written (though when Woods tries to implicate the Community Reinvestment Act as a significant factor in this debacle his stock dropped in my eyes). I also want to assign Daniel McGinn’s House Lust: America’s Obsession With Our Homes, but the campus bookstore, which routinely performs miracles, couldn’t get their hands on enough copies in time . . . perhaps they can do that for the spring. Also, I have a stack of yet-to-be-read books on the still-unfolding debacle on my nightstand; that stack probably includes some other great choices, so I won’t decide just jet.

For the final exam for this unit on the current economic turmoil, for one question I asked the students to give an example of how (or at least how others have argued) 1) wretched excess, greed and recklessness on Wall Street, 2) government actions, 3) government inaction (or de-regulation) and 4) consumer misbehavior contributed to the current turmoil. They had plenty to write.

Sadly, I had three very fine accounting students in the group who got disappointing news about their job searches during our “course within a course.” These are good, likable students—students who majored in accounting for goodness sake!—and they were being told, “in a normal year, we’d hire 10 and you’d be in that group, but this year because of the economic slowdown we are only hiring three new grads and you’re ranked fifth” or something along those lines. Harsh.

It was a painful reminder that the subject we were studying wasn’t purely “academic.”

My course syllabus is here.

Now that I’ve “piloted” this course in Jan term and as part of the Core 350 program I think I’ll explore offering it through our continuing studies division. It would be interesting to examine this material with older adult (or “non traditional”) students. Most people are understandably unfamiliar with the secondary markets for mortgages and products derived from them, but undergraduates have usually never even bought a house, so even the primary transaction is unfamiliar to them. Older students would likely have had experience buying or selling real estate, or might own properties whose equity they are concerned about. That could intensify things. And their work experiences would likely enrich the class (they might themselves have been mortgage brokers or realtors, before this debacle).

Had a fun debate today in “Core 350,” an applied ethics and public policy course required of all undergraduates at Whitworth, the little college where I now teach.

The debate was about globalization. I argued globalization is good because it:

• Is the best poverty reduction program in the history of the world;
• Promotes peace;
• Diffuses a host of good things around the world; and
• Doesn’t inevitably trounce local cultures (and to think that it does is ethnocentric).

I think all of that is essentially correct, though of course each proposition begs for qualification, too. But before an audience of 160 restless undergraduates, with only five minutes to speak initially, I’ve learned that a narrow, exquisitely nuanced claim is not the best opening gambit. Better to say something bold, then qualify it subsequently as time allows.

I buttressed the claim about poverty reduction by talking about India and China, of course. I also cited South Korea, Taiwan, Hong Kong and Singapore as examples of places that have, through participation in the global economy, jumped from third to first world. And of course I mentioned the counter-examples of North Korea and Iran. The facts simply support the claim that globalization has lifted hundreds of millions of people out of desperate poverty over the last twenty years.

For the “promotes peace” claim I talked about President Obama’s current visit to China, noting that the mutual entanglement if not interdependence of “Chimerica” makes armed conflict seem much less likely (quite unlike the Cold War era with the former Soviet Union). I threw out the canard about how countries that are part of the Dell computer supply chain have never gone to war. To resolve grievances countries in the WTO ask for a “dispute resolution panel.” This is a good thing.

With respect to the “diffuses good things” claim, I argued that, contrary to what some courses or flippant pop commentary may have led students to believe, globalization actually promotes racial and gender equality, environmental protection, good labor standards, civil society and other good things. Jagdish Bhagwati’s book In Defense of Globalization was my inspiration here.

With respect to the cultural resilience argument, I was making a peremptory strike (using the “Bush Doctrine” in debate?) against an argument that I anticipated my opponent would make. I drew on my experiences in China, where it’s common (though I think comical) to hear visitors bemoan the loss of “Chinese culture” when they see a Starbucks, KFC or McDonald’s (but fail to recognize those things stand out to them because they can’t read the hundred other signs on the street, signs which probably tout Chinese medicine, stinky tofu, frogs on a stick or perhaps even a repast of, gasp, puppies). If anybody in the world is culturally resilient, surely it is the Chinese. With 1.4 billion people and a few thousand years of history on their side, it’s hard to imagine a few KFCs marginalizing their culture. I was also inspired by the book Golden Arches East: McDonald’s in East Asia, whose contributors detail how something much more complex than “cultural imperialism” is going on with McDonald’s global success. I asked the students in the auditorium how many of them eat sushi, have or know somebody who has a Chinese character tattoo (a symbol in a foreign language, permanently on his or her body!) and whether they drive a foreign car (and pointed out that of course they put foreign oil in it). None of these things seemed to make them feel less American, I observed, so I asked why should a few foreign franchise restaurants elsewhere make them feel that another culture is being wiped out in some tragic way?

For the business students that have had my international business class, probably none of this sounded surprising, but most of the students in the course are not business majors, and I imagine that their previous discussions of globalization may have taken a different, less enthusiastic—perhaps even hostile—tack. I hope our students get exposed to both views, and to many more nuanced, in-between perspectives.

The short “debate” was with another faculty member, then a couple of additional faculty members served as a panel of examiners. We also had time for a few student questions. It seemed to work pretty well.

Besides trying to broach this topic (which they will hear subsequent lectures on and will read more about), we wanted to model civil, reasoned discourse. Today’s vitriolic political climate makes this seems like an especially important thing to do with undergraduates.

Even with my somewhat hyperbolic (or at least insufficiently contingent) “affirmative case,” I think we managed to accomplish that objective. During the question period we each acknowledged difficulties in our maximal positions.

I think having other faculty question us was helpful; calling something a “debate,” at least for me, with my “zealous advocate” legal training, tends to make me adopt a ready-for-combat stance, but a “seminar” setting helps encourage the kind of discourse we wanted to model.

This is my first semester on the teaching team for this required public policy/applied ethics course. Today was great fun, but the course is a lot of work and the incentives haven’t been calibrated in a way that makes faculty line up to participate. I’ll be back for the spring version of the course, but I’m not sure whether I’ll participate beyond that.

This week my class on the global financial crisis ended. I was fortunate to have worked with a great group of students. We were, obviously, dealing with an important, complex topic with extraordinary relevance. It was, I think, a great class.

Some of the students from class on the global financial crisis.

That sounds immodest, but the class was great for many reasons that were wholly unrelated (or only coincidentally related) to anything I did. I’ll list several of those factors below, but first let me brag a bit about the class and these students.

I am tremendously proud of everything the students learned. I believe any one of them could now give a coherent account of what’s gone awry in the economy, connecting the dots between decades of low interest rates and global development (creating pools of hungry capital), the resulting expansion of subprime lending (and race to the bottom in underwriting standards), mortgaged back securities and derivatives traded in the secondary markets, high leverage, and the resulting liquidity crises that sprang up once housing prices stalled and defaults increased, and the resulting global economic slowdown and negative feedback loops in which we now find ourselves. We had good discussions about whom to blame for what’s happened and also had good debates about what ought to be done now (and the appropriateness of what has been done) to thwart further catastrophe.

They learned a lot of relevant technical terms and concepts, too. They can all I believe explain what an investment bank does and what a hedge fund is, know the difference between a credit default swap and a collateralized debt obligation and can explain the relevance of the TED Spread. They know who Neel Kashkari and other key players are, and they know how the use of TARP funds changed over time. They can tie debates over the stimulus package into long-standing debates between Keynesians and Chicago/Austrian School economists. Whatever their political views (and we had a predictable range), they are informed, not mere bumper sticker platitudes.

Beyond learning a lot of important technical information and putting together a coherent big picture narrative, the students now also know something about the local impact of the current economic turmoil. We heard presentations from the owner of one of the leading local real estate firms. He told us how “months of available inventory” have spiked locally. He also explained how the sluggishness of some local banks in handling pre-foreclosure “short sales” have gummed up the non-foreclosure market, even though housing depreciation in Spokane hasn’t been nearly as severe (and the increase in foreclosures hasn’t been nearly as pronounced) as in some other markets. Our university’s vice president of finance and operations also gave us a very informative, candid talk. He explained how the shirking endowment, problems at the Common Fund (which used Wachovia as its custodian bank), and general economic uncertainty are affecting our own institution’s plans to build a new science building and budget for next year. In the first week of the course the students interviewed their own parents, asking about percentage declines in 401ks, the number of houses for sale on their block and whether layoffs or other retrenchment had affected their parents’ companies yet. All of this made the subject more immediate, not just “out there” abstractions.

Now, what made this class work so well?

Obviously, one key reason for the success of the class was its uncanny synchronicity with important, unfolding events. If I teach another forty years, I doubt I will ever again have an entire class so perfectly aligned with events dominating the news. Congress debated the release of the second half of TARP funds, confirmation of the new treasury secretary and how to structure the nearly trillion dollar stimulus package as we studied these issues. The students were reading the official summary of the stimulus bill the same week as the representatives who needed to vote on it. One day a student gave a presentation on “Who is Ben Bernanke?” The next day, we watched clips from a speech he had just given at the London School of Economics on the Fed’s efforts to respond to the crisis. We just couldn’t have dealt anything more topical or been closer to “real time.”

Most importantly, the students who took the class were an unusually bright and motivated group, and they participated actively. I told them we would have a seminar, not a lecture course, and that I expected them to do more talking than me. It worked out that way. The students’ lively engagement made the class a delight. It helped all of us, including me, learn a lot.

Also, we had a great mix of participants in terms of majors and class seniority. We had economics majors taking literally their last undergraduate class, accounting majors, physics majors, sociology majors and even a few first-year students. This mix was helpful in a number of ways.

Our first-year, non-business school students asked great, fundamental questions like “what is an option?” That helped all of us ground the discussion and build our understanding brick by brick.

Our more senior, specialized students were able to take the lead on topics not as accessible to beginners. Our economics students, for example, helped everyone understand what the Fed is and what it actually means when they “cut” interest rates to nearly zero. An accounting major gave an excellent presentation on mark to market accounting, explaining how that FASB rule seems to have accelerated the crisis when markets for certain derivatives became illiquid. We had a student from the PRC talk about the impact of the crisis on China, and a student from Europe talked about the impact and response there. The class was an almost ideal blend of students (we had no one from Iceland, alas, but did have a good presentation on the impact of the crisis there, too).

Another reason the class worked so well, frankly, is that I got out of the way. I had to, given that before the class I wasn’t myself sure what the TED Spread was and couldn’t have easily explained the difference between an MBS, CDO or CDS. My main role was simply to propose the class (as department chair, I felt it would be gross negligence for our business school not to offer a class on the most important business story in a long, long time), offer some framework questions and then come up with a list of specific subjects that I knew we would need to know more about. I assigned those topics to the students, and they then did research, assigned selected readings to the other students and made presentations on their respective topics. I simply sat in the room as another participant, chiming in from time to time. It is humbling and useful to realize that my greatest pedagogical effectiveness often occurs when I talk the least.

Technology helped, too. For a current-events driven class, it was invaluable to be able to replay clips from C-SPAN, two great episodes of This American Life about the crisis (1, 2), NPR news stories (and content from the fabulous NPR Planet Money Blog). Broadcast content used to be ephemeral (or at least inconvenient to recover); now vast amounts of it are available on demand. This is a powerful shift for educators. We watched Representative Waxman interrogate Alan Greenspan, getting him to admit he had been wrong in thinking that financial institutions would act in their own rational self interest, making it unnecessary to regulate derivatives. After presentations about Henry Paulson and Kashkari, we watched them testify before congressional committees. The students also collaborated in Google Docs, which not all of them had used before (early in the term we spent a few minutes on the very practical 21st century skill of “how to hyperlink.”)

Of course, my ebullience over all the students learned, the success of the class and how fascinating the crisis is as an intellectual matter is overshadowed by grim economic realities. Unemployment grew substantially even during the three weeks the class met (it was a special January term class that met every day for three hours). Poignantly, a student who took this class as his last-ever undergraduate class is among the finest seniors on campus; he has a nearly perfect GPA and is an outstanding, winsome young man . . . and so far he can’t find a job.

So, what’s ahead? The current shrinkage of aggregate global demand may be sufficiently mitigated by current monetary policy and stimulus plans. This whole, painful ordeal may lead to better financial sector regulation. This downturn may prompt households, corporations and ultimately governments (especially in the debt-addicted US) to de-leverage in a healthy way. Or it may be time for all of us to re-learn how to farm. All that is unclear to me. But I am pretty sure that the small group of students that participated in my class understand the causes, consequences and government responses to the ongoing economic turmoil as well as any undergraduates in America, if not the world, and I am extremely, and I hope justifiably, proud of that.

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Besides the course syllabus, this link also lists the readings and some of the multimedia selections the students assigned each other. Many of these choices could be supplemented and upgraded, no doubt, but some of them are spot-on, and the overall course template (the framework questions, list of topics covered, format of having students make presentations/lead discussion on the specific topics) worked very well. This is what I would build from were I to teach the course again.

Oh, and here’s the final exam. It was only 10% of the grade; the two presentations each student gave and participation in daily discussions constituted the bulk of what they were assessed on, and as in many good classes grading and the exam became a sideshow rather than the main event.

Comments welcome.

Today in my international business class I played an excerpt from the Yum Brands (YUM) conference call for the third quarter, held just last week. (Yum’s corporate website; Google Finance info; Yahoo Finance info).

The first part of the call is dominated by discussion of China, the brightest spot in Yum’s operations. Yum’s CEO said he imagines having 20,000 restaurants in China one day, which he asserted seems entirely reasonable given that McDonald’s Corp. has 14,000 outlets serving a US population of only 300 million (compared with China’s 1.3 billion).

Yum grew by more than 20% in China for the quarter, compared to essentially flat growth in the U.S.

After listening to this CEO in Louisville, Kentucky brag about how his company was buoyed by its China results, the class compared the US and Chinese websites for KFC. We noted how the Chinese website has a much more youthful and sports-focused theme.

The class didn’t have any students who read Chinese, so I gave them a little guided tour of the website, pointing out how the name of the featured 3-on-3 basketball tournament creates a nice English-Chinese rhyme (between 3-on-3 and Ken-de-ji or Kentucky in Mandarin). I also pointed out how the website featured a booklet celebrating KFC’s 20 years in China.

The US website, though carrying a nice banner about a corporate effort to fight global hunger, looked much flatter than the Chinese site and emphasized, if anything, cheap prices more than youthful vigor.

On the call the CEO noted that besides KFC and Pizza Hut, Yum is developing some chains in China that don’t yet exist in the US, including a sit-down restaurant called Tea Time which they say might be able to challenge Starbucks in China. They are also testing a different quick-service chain in Shanghai now.

I think hearing about how Yum’s China operations are the company’s best current and future growth story and noting some contrasts in the marketing messages between the two websites helped drive home some lessons about the challenges (and opportunities!) of striking the right balance between global standardization and localization. The website contrasts also helped underscore the difference between corporate strategies of competing on price vs. other kinds of distinctiveness.

Bloomberg’s coverage of Yum’s earnings report is available here.

It’s always bothered me that I spent three years and more than $100,000 on a legal education (which included a required full academic year of studying contracts) yet saw my first contract only after I graduated, passed the bar and was sent to a room filled with boxes of contracts and told to “look for anything unusual.”

Reeling from that experience, I’ve always made an effort to distribute at least one sample contract to my business law students and teach them some basic things about typical contract structure.

Of course I don’t need to prepare my students—mostly undergraduate business majors—to do legal due diligence, but I think showing them at least a few sections of a sample contract accomplishes several useful things. It’s extremely helpful for them to learn how lawyers can add value to corporate transactions by providing terms that help assure risks are thoughtfully allocated and information asymmetries between buyers and sellers are reduced. It’s also good for them to understand how reps. and warranties, covenants and indemnification provisions function in a typical M&A deal. At the very least, I want them to know what is meant by “due diligence.”

In previous years I’ve used the table of contents and a sample provision or two from the ABA’s Model Stock Purchase Agreement, but today I tried something different.

Earlier this semester I had talked with the students about the Viacom v. YouTube/Google litigation, using this current (and thus far unresolved) case as a way to illustrate some basic principles of court procedures (in particular, the necessity of a court having both personal and subject matter jurisdiction and how a complaint plus the defendant’s answer constitute the pleadings that kick off litigation). More recently the case helped me underscore the significance of some IP rules.

Because virtually all the students use Google every day and most of them have watched YouTube videos on occasion, I think it’s been a vivid series of examples. Today I used another Google example to begin our discussion of contract law.

I gave each student a copy of the contract for Google’s acquisition of YouTube.

I showed them how I found it through the SEC’s EDGAR service

To set the stage, I explained what an information asymmetry is (for example, I know what’s on the test but they don’t). I explained how problems of information asymmetry are inherent in many types of business transactions including M&A deals and the public trading of securities (because insiders know more about a company than outsiders and that information is important for valuation).

I then talked about how (1) mandatory disclosure for public companies, (2) due diligence investigations by business people (and their accountants and lawyers) and (3) the terms of a stock purchase agreement are all ways to overcome these information asymmetries.

I then began to walk them through the Google-YouTube contract, explaining how the reps. and warranties section creates disclosure duties (“we’ve paid all our taxes and have no litigation except as disclosed on the attached schedule”).

Next time we’ll look at the indemnification provisions that add force to the reps. and warranties.

This summer I helped orchestrate a five-week summer program in China for US law students. The program was organized by the law school of the University of Minnesota.

It was a lot of fun helping 34 law students, three US law professors, two Chinese language instructors and an assortment of other guests experience China, many for the first time. They learned a lot and I think had a great overall experience.

The group took classes four days a week. On Thursdays and on some weekends we organized field trips. These excursions afforded the participants some outstanding experiences.

We visited the Great Hall of the People where they heard from senior staff members of the National People’s Congress Standing Committee.

We went to the Supreme People’s Court and met with four sitting judges.

By happenstance, retired U.S. Supreme Court Justice Sandra Day O’Connor was in Beijing this summer, and participants in the summer program had front-row seats to hear her speak. Dean Stephen Hsu of the School of American and Comparative Law at the China University of Political Science and Law made that possible. CUPL partners with the University of Minnesota Law School for programs in China. Coincidentally, Dean Hsu and I worked together at the same law firm earlier in our careers, and it was nice to interact with him again.

The students also got to hear from leading local and expatriate lawyers. A panel of distinguished Minnesota alumni spoke to them the first week, and the last week they heard from an expert panel on Chinese legal reforms.

In addition to their formal classes and law-related field trps, we organized a number of cultural excursions. The group hiked the Great Wall and watched an acrobatics show. Most of them also participated in an optional field trip to Shanghai. They also got to visit the offices of the Beijing city planning bureau where they heard about the venues under construction for next summer’s Olympics.

There are a number of other China-based summer program for US law students, but surely Minnesota’s is one of the best. I was delighted to be involved in it and value the many new friends I made.

This academic year I am living in China conducting research and assisting with the China-based programs of my employer, the University of Maryland’s Robert H. Smith School of Business. Last weekend, just before the Chinese New Year, we held commencement exercises for our second Beijing-based class of executive MBA students. A story about the graduation exercises is here and a few photos are here.

Last week I led a class in Shanghai for Smith School MBA students.

The course was titled Doing Business in China. Its main focus was China’s financial sector, including China’s banking, insurance and and securities markets. We also explored general themes of doing business in China and looked specifically at foreign direct investment (FDI) in China’s manufacturing sector.

We met with a number of insightful people, including those listed below. (The list is arranged by topic, not quite chronologically.)

General Themes of Doing Business in China

Patrick Cranley, managing director of Asia Media, a communications company in China.

James Golsen, a representative of the U.S. Foreign Commercial Service.

Alick Sun, China manager for Schering-Plough, an agricultural biotech company (and Maryland MBA).

Prof. Zhou Dunren, a former Fudan University faculty member who now works for the Pudong Institute for the U.S. Economy.

Xiang Wang, an attorney with Jones Day who specializes in IP law.

Banking

Julia Wu, a deputy general manager for Deutsche Bank in China.

(Stephen Green of Standard Chartered also discussed banking).

Insurance

Dean Cowan, a senior manager and insurance specialist with BearingPoint who has been stationed in Shanghai for over a year.

Terrence Cummings, an actuary with the American International Assurance (AIA).

Michael Yu, a vice president of AIU in China.

Both Mr. Cummings and Mr. Yu spoke to us at the headquarters of American International Group (AIG) in their old building on the Bund.

Securities Markets

Situ Danian, a senior research fellow at the Shanghai Stock Exchange.

Li Gang, a Shanghai-based managing director of China International Corporation (CICC), the leading investment bank in China.

Stephen Green, senior economist with Standard Chartered in Shanghai and author of China’s Stockmarket.

Foreign Direct Investment & Manufacturing

Qiu Xiangrong, a deputy director of investment promotion in the Pudong New Area department of commerce. Ye Fan also joined the discussion and helped with translation.

Officials from the Suzhou Industrial Park.

Zou Qin, a vice president of Black & Decker, in charge of their Suzhou Industrial Park factory which we were able to tour.

Natalie Annmitoraj, a vice president for quality with Shanghai General Motors (no photo). The SGM factory tour was interesting, and we were grateful for the chance to see first hand what may still be the largest FDI project in China. SGM’s speaker gave us a brief presentation about the JV, including statistics about its booming sales (from 20,000 to 500,000 cars in 6 years). However, her expertise was mainly in operations, and I think for this group of MBA students it might have been even better to hear from someone who worked with finance, management, law or some other “corporate” department. The speaker was unable or unwilling to answer many of the students questions.

These meetings were all held during a single tightly-packed week.

Prior to arriving in Shanghai, the class met for nine hours in the U.S. These pre-departure meetings, spread over three Sunday afternoons, were designed to give the students initial context for what they would experience in Shanghai. I lectured about Chinese language, culture and history. It was radically truncated, but it did at least give them some highlights. I didn’t have to persuade them of the relevance of history; between our first and second meetings, anti-Japan protests erupted across China, making the relevance vividly clear.

In the final U.S. meeting students made group presentations. I had divided them into teams and assigned each team to one of the main topics we planned to explore in Shanghai (general themes and issues, banking, insurance, securities markets and FDI/manufacturing). Each group gave the entire class a preliminary briefing on its respective topic. This allowed a subset of the students to become conversant with a particular area and enabled the entire class to gain at least one exposure to some of the vocabulary they would be hearing in China (NPLs, SOEs, SAFE, CSRC, CBRC, CIRC, etc.).

Besides providing an initial briefing, each group was asked to post material to a course blog while we were in Shanghai. The idea was that they would cover our activities in China related to their topic, providing a journalistic account of what we did in Shanghai along with some analysis and links to other resources relevant to each group’s respective topic.

I think the pre-departure group presentations were helpful, and I think the idea of a course blog is generally a good one. But there is substantial room for improvement in the execution of the course blog assignment. I’ll write about that separately.

Overall, I think the course was extremely successful. Many of the students were, predictably, captivated by Shanghai. They could feel the momentum, and they saw the physical transformation the city has already undergone. Like many visitors, they became convinced that what is happening in China is profoundly important for the future. The could feel it, which is something classroom-based education doesn’t always inspire. However, I was pleased that, along with being seduced, they also heard about some of the real difficulties of doing business in China and some of the enormous challenges the PRC faces.

I assigned the book Mr. China to the entire class. It is not a theoretically rich work, but its stories about how some Western business people lost enormous sums in China and were sometimes defrauded by their Chinese partners is sobering.

Once there, the students heard a lot about infirmities in China’s banking system and stock markets. They also got a sense of some of the regulatory hurdles that many foreign investors face. Thus I think they got a relatively well-balanced exposure to the enormous opportunities and challenges confronting those who do business in China.

Many of these students will probably return to China on business. Even if they do not, what happens in China is likely to affect their lives and careers. These students will be equipped with some very helpful background for grappling with that aspect of their future.

One delight of this trip for me was that I didn’t have to fret about logistics. The Maryland China Center, a quasi-state agency of Maryland based in Shanghai, provided great support, as they have for each of the last three years when we’ve offered a Smith School of Business course in China. Above I am pictured with MCC staff members Karen Sun and Jim Curtis, our minders for the week. When I took a group of undergraduate students to Hong Kong in January, I didn’t have such help and personally made dinner reservations, booked buses and counted noses at each stop to be sure we didn’t leave anyone behind. All that was exhausting. The MCC relieved me of all that, so I was able to concentrate on structuring the course and other purely academic dimensions of the trip. Moreover, they helped not only with “logistics” but also with the substantive content. Having worked in China before, I had contacts in the sectors I wanted the class to focus on, but the MCC arranged meetings with many high-level people whom I didn’t know. They made the course much better than it would have otherwise been, and I am very thankful for their hard work and valuable help.

This January I taught a class on doing business in China. The course was mainly conducted in Hong Kong, with a day trip across the border to Shenzhen. The students were 28 undergraduates of the University of Maryland. All were business majors; nearly all were honors students.

In Hong Kong they heard presentations from U.S. government staff based in Hong Kong, including speakers from the U.S. Foreign Commercial Service and the Department of Agriculture (who talked about biological trade issues, including bird flu, “mad cow” disease, and SARS).

They also went to the Hong Kong Securities and Futures Commission. The SFC’s Laurence Li gave them a presentation there.

The next day they heard a speaker from Hong Kong’s Independent Commission Against Corruption.

In Shenzhen they visited the Shenzhen Stock Exchange. A SZSE staff member gave them a presentation, enabling them to compare the HK and mainland markets.

The students were required before they left the U.S. to read two books, produce an oral and written book report and take a brief examination based on preliminary readings and lecturers I gave. While in Hong Kong they were required to keep a daily journal. Once we returned to the U.S. they had to write a research paper on a topic related to doing business in greater China. Thus in terms of workload it wasn’t an “easy” class, but their formal schedule in Hong Kong was purposefully kept light, leaving them ample time to explore.

From reading their journals I know they made good use of that freedom. They made excursions to Lantau and Macao, went to museums and discovered how vibrant and interesting the various districts of the HK SAR can be. Many of them also made modest contributions to the HK economy. They shopped a lot, and some visited the Jockey Club in Happy Valley.

Elanna Tam, US Foreign Commercial Service

Laurence Li, Hong Kong Securities and Futures Commission

ICAC

USDA

Gordon Cleveland, USDA.

Shenzhen Stock Exchange.
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Teaching the course was very rewarding (perhaps “orchestrating” is a better word, since I did only a minor part of the lecturing). For me this experience completed a meaningful circle. Fifteen years ago I made my own first trip to Asia as an undergraduate on a study-abroad class. We went to Hong Kong and then into the PRC. We happened to arrive on the mainland just days before tanks rolled into Tiananmen Square on June 4, 1989.

We were in Anhui Province, far from Beijing, in the small city of Wuhu. That’s the home of Anhui Normal University, an institution with which my Alabama college expected to develop an exchange program.

Even in Wuhu there were protests. The day after tanks cleared the Square in Beijing, An Shi Da students marched onto the streets outside their campus. They wore white to express mourning. They carried wreaths they’d made from tissue paper. They wanted to inspire a general strike. Many had friends in Beijing whose fates they didn’t know. They’d been boycotting classes throughout the spring.

Watching the violence on CNN, our parents were of course distraught. It was unclear what would happen next. There were rumors of splits within the army, talk of possible civil war. In any case, blood was already on the square in Beijing. Nobody’s parents would be assuaged just because violence hadn’t yet erupted in Wuhu. We had to cut the visit short. But foreigners were stampeding out of China. You couldn’t easily book a flight home. We traveled from Wuhu to Anhui’s capital Hefei, then on to Nanjing. From there we got a flight back to Hong Kong. After a night there, we flew back to the U.S.

Reporters met our plane in Birmingham; we were big local news–locals trapped “behind the lines” as history unfolded. I had no comment. I had nothing coherent to say; I felt conflicted and overwhelmed, unable to process what I’d experienced. I’ve spent much of the last 15 years studying China, trying to sort it out.

China is now vastly different than it was in 1989. At least in some ways. Transformation hasn’t come to all areas.

This January, leading my own class trip to China, I awoke to find the headline, “Zhao Ziyang is finally free” on the front page of the South China Morning Post.

Later that day I met two young mainlanders in Hong Kong. Both were recent graduates of PRC colleges. I mentioned Zhao Ziyang’s death to them. They’d not yet heard about it. Worse, they didn’t know who he was. The memory of Zhao, the former head of the Chinese Communist Party, had been effectively erased from their world. That gave me chills, recalling some of what I felt in the PRC 15 and a half years before.